ELA Fleming All Alone in Anti-Leasing Legislation

                             by Kit Menkin

WASHINGTON -- Sen. Chuck Grassley (R-Iowa,) chairman of the Committee on Finance, raised the growing momentum toward shutting down, as he calls it, “ abusive leasing tax shelters that allow corporations to claim tax deductions for sewers, bridges and subways that are owned by foreign countries or paid for with U.S. taxpayer dollars.” Not only does he have the U.S. Senate on his side, but the U.S. Congress, plus the U.S. Treasury Department, but apparently full support of the Bush presidential administration.

The full Senate could take up Grassley's leasing loophole closer as early as next week when it considers the FSC-ETI bill, Foreign Sales Corporation/Extraterritorial Income.

Chat forum sites such as at Yahoo and Lessors.com show most of those in the leasing business believe the tax consultants, tax attorneys and accountants who specialize in the tax shelter business are taking advantage of the current tax codes. They appear to agree with the general public, that “tax abuse” has resulted and should be curtailed.  Readers to Leasing News have expressed the same view point. It definitely appears that media reports are very one-sided. 

The Equipment Leasing Association appears to be alone in their opposition to the measure. Even the Association for Government Leasing and Finance has stated it basically does not affect their member's transactions. The other leasing companies have yet to make a stand.

There is no debate that the negative publicity and one-sided nature of the reporting have been positive for the leasing industry.  The only legislative voice to leasing's favor has been ELA President Mike Fleming.

Grassley has asked Majority Leader Bill Frist to schedule floor consideration of the FSC-ETI bill as early as possible to avoid European Union sanctions over the FSC-ETI tax regime, which Grassley's bill would replace. Based on his contacts with the majority leader, Grassley expects this to happen the first week of March.

"My initial bill came out before we had as much knowledge on these leasing deals as we have today," Grassley said. "I'm grateful for the Administration's focus on this issue. Not only has the President embraced this issue, but he's also developed it in a substantive way and helped to draw the support of more key members of Congress. As a result, we're closer to shutting off a spigot of tax abuse before it drains the Treasury dry."

"I put forward a fix of this problem last September, and the Finance Committee approved my fix," Grassley said. "The following month, the Finance Committee further exposed these schemes, thanks to anonymous testimony by a brave leasing industry executive who was outraged by these abusive deals. Now the President, the Treasury secretary, and the leaders of the Senate Budget Committee are all on board. We all agree that leasing shelter transactions are trickery at the taxpayers' expense. This great rip-off has to stop."

Yesterday, Leasing News reported that Wachovia, the nation's fourth-largest banking company and third-largest full-service brokerage, announced it will move into Texas by the end of the year. 

In the PBS television documentary about tax shelter abuse, Wachovia was highlighted for a sale/leaseback on a Bochum, Germany under ground sewer, " But through other sources we confirmed that the Bochum sewer lease was a half-billion dollar deal involving the fifth largest U.S. bank -- Wachovia. (Last year, Wachovia's annual report indicated that it paid no federal taxes on $3.6 billion in profits. A big chunk of its tax savings came from its $3 billion in leasing activities -- though how much was generated from cross-border deals like Bochum's is impossible to tell.)"

Wachovia will open wholesale and retail banking operations in President Bush's home town areas of Dallas-Fort Worth, Houston, Austin and San Antonio, with its state headquarters in Dallas.

Last October, Grassley's Finance Committee hearing included testimony from an anonymous expert witness on how major U.S. companies receive huge tax deductions by pretending to lease the infrastructure of cities and foreign countries and then pretending to lease them back. These arrangements have resulted in U.S. taxpayers picking up the tab for a huge portion of Europe's transit infrastructure,

he said, and are now proliferating in cities across the country as tax shelter promoters shop their wares to cash-strapped local governments, he claimed. “The promoters are using the cities to defend their schemes by calling these deals ‘public-private partnerships'."

Grassley's international tax reform and domestic manufacturing tax relief bill -- known generally as the FSC/ETI bill and specifically as the Jumpstart Our Business Strength (JOBS) bill – is reportedly aimed at what he calls the loopholes that tax shelter promoters exploit for these leasing transactions. The Finance Committee passed the bill on Oct. 1, 2003. Since then, Grassley announced that he will change the effective date of his provision to Nov. 18, 2003, instead of the date of enactment, to dissuade a rush to market of last-minute deals designed to beat the legislation's effective date.

Fleming said the bill would impose broad and far reaching limitations on deductions allowable to property leased to or used in connection with the provision of services to state and local governments and other tax exempt entities. The elimination of the critical financial support these leasing transactions provide has not been replaced in either Sen. Grassley's or the President's budget with a plan for alternative financial support. 

“Has anyone talked to these organizations to see how they are going to finance their projects? That side of the story that isn't being told,” said Fleming.

The Equipment Leasing Association is encouraging the very groups that stand to lose essential financial support that these leasing transactions provide, to object to the bill and budget proposals. 

“Declarations in Congress have brought many pending agreements to a standstill without consideration of alternative sources of financing for hospitals, cities, schools and fire departments. They are the ones that are really going to be the losers in this,” said Fleming.

Senator Grassley's response was to modify his proposal to reflect new findings received from the Treasury Department, allegedly showing that the leasing problem is far greater than previously known. The President's proposed Fiscal Year 2005 budget has now included Grassley's proposal “to clean up abusive leasing tax shelters, with an expansion to cover all foreign party leases and appropriate carve-outs.”

The President's proposal raises $33 billion over 10 years. In other words, according to Grassley, the leasing shelters are expected to deplete federal revenues by $33 billion over 10 years if Congress does nothing.

Earlier this month, U.S. Treasury Secretary John Snow testified before the Senate Budget Committee that “the leasing transactions are unacceptable tax avoidance schemes that need to be stopped" and pledged to work with Congress to end the practice. Budget Committee Chairman Don Nickles said he and the panel's ranking member, Kent Conrad, plan to take action “ to stop the tax avoidance practice,” according to media reports.

It looks like the only voice promoting the financial benefits of leasing

in Washington, D.C. is ELA president Mike Fleming.

Here are previous articles in Leasing News:

             http://www.leasingnews.org/Conscious-Top%20Stories/ELA_Tax_loop_hole.htm